# Stock pickers reckon it’s time to move on from central banks Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2023-03-06 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: Investors Shift Gear from Tech, Seek Stable Stocks Amid Meta Description: Stock market investors are ditching growth stocks like tech for firms resilient to rising rates and inflation. European banking stocks, with high dividends, are URL: https://financedigest.com/stock-pickers-reckon-its-time-to-move-on-from-central-bankshtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2023-03-06t101644z1lynxmpej25096rtroptp4bridgewater-fund-1736814376607-compressed.jpg) By Naomi Rovnick LONDON (Reuters) – Stock market investors are calling time on the idea that the Federal Reserve, and other major central banks, have their back. Hopes for interest rate cuts by year-end have evaporated, given resilient data and sticky inflation, suggesting central banks will instead be inclined to keep borrowing costs around their highest since 2007 for some time. The take away for [money managers](https://www.financedigest.com/why-choose-microsoft-money-as-your-financial-manager.html "Why Choose Microsoft Money As Your Financial Manager?")? Switch from so-called growth stocks, such as tech, and focus on businesses that can withstand the end of cheap funding — [banks that benefit from higher rates and resources and consumer staples businesses that can sell goods at prices that match](https://www.financedigest.com/fintech-v-the-banks-uneasy-bedfellows-or-a-match-made-in-heaven.html "FinTech v the Banks: Uneasy Bedfellows or a Match Made in Heaven?") inflation. Companies that pay high dividends relative to their [share prices](https://www.financedigest.com/netflix-cuts-prices-in-some-countries-to-boost-subscriptions-shares-drop.html "Netflix cuts prices in some countries to boost subscriptions, shares drop"), instead of investing in growth, are also favoured. For years, we’ve had a capitalist world that was highly dependent on central-banking policy and the ‘Fed put’,” said Gerry Fowler, head of European equity strategy at UBS, referring to the concept of [central banks supporting financial](https://www.financedigest.com/inflation-trumps-financial-risks-as-central-bank-tightening-set-to-continue.html "Inflation trumps financial risks as central bank tightening set to continue") markets any time economies turn lower. “We are rapidly transitioning away from that.” VALUE IS BACK European [banking stocks](https://www.financedigest.com/stocks-rise-after-bank-sale-fuels-investor-risk-appetite.html "Stocks rise after bank sale fuels investor risk appetite"), considered a deep value investment because of relatively low price-to-earnings ratios and higher dividend yields, have jumped 24% this year. Global equity income funds had their first annual net inflows last year since 2014, according to Morningstar data, a [trend that has continued](https://www.financedigest.com/volkswagen-strikes-below-inflation-wage-deal-continues-german-trend.html "Volkswagen strikes below-inflation wage deal, continues German trend") into 2023. Shares in tech firms, which dominate world equity markets and rely on cheap money to fund innovation, had a strong start to 2023 on hopes that aggressive [rate hikes would soon end as the economic](https://www.financedigest.com/stocks-falter-as-economic-worries-nag-nz-delivers-big-rate-hike.html "Stocks falter as economic worries nag, NZ delivers big rate hike") cycle decelerated. The Nasdaq is still up about 12% year-to-date and a sub-index of European tech [stocks has gained](https://www.financedigest.com/stocks-mixed-dollar-gains-after-robust-inflation-jobs-data.html "Stocks mixed, dollar gains after robust inflation, jobs data") 15%. Still, these rallies lost steam from February with a build-up of strong U.S. [jobs and consumer data and as euro zone inflation](https://www.financedigest.com/bank-of-england-still-needs-to-see-the-job-through-on-inflation-pill.html "Bank of England still needs to ‘see the job through’ on inflation: Pill") stayed high. Graphic: US interest [rate and tech stocks](https://www.financedigest.com/fed-rates-up-boe-up-ecb-up-stocks-up.html "Fed rates up, BoE up, ECB up, stocks up") https://www.reuters.com/graphics/GLOBAL-STOCKS/STOCK%20PICKING/znvnbxqanvl/Fed%20and%20NASDAQ%20(final).png ALL CHANGE With policymakers prioritising the [inflation fight and money markets pricing](https://www.financedigest.com/uk-shop-price-inflation-hits-record-8-in-january-brc.html "UK shop price inflation hits record 8% in January: BRC") U.S. rates [moving above 5% this year](https://www.financedigest.com/30-years-of-excel-lence-time-to-move-on.html "30 YEARS OF EXCEL-LENCE: TIME TO MOVE ON?"), the door on rate cuts soon has been shut. We probably are not getting a ( [central bank](https://www.financedigest.com/central-banks-hike-rates-again-but-a-pause-is-coming.html "Central banks hike rates again, but a pause is coming")) pivot,” said Janus Henderson portfolio manager Robert Schramm-Fuchs. He added that he was buying shares in companies in mature industries left [behind by the easy money-enforced tech](https://www.financedigest.com/whats-the-tech-behind-regtech.html "What’s the tech behind regtech?") bubble, such as miners and industrial suppliers. “We’re going back to what investing used to be,” he said. “It is a good environment for stock-picking.” Neil Birrell, chief investment officer at UK asset manager Premier Miton, said his [funds were adding to positions in energy companies and banks](https://www.financedigest.com/bank-funding-for-renewables-stagnates-vs-oil-and-gas-report.html "Bank funding for renewables stagnates vs oil and gas – report"), among the clear winners of the last six months. It’s a contrast to recent years. In 2020 for instance, cheap money flooded into tech and other growth stocks, with rapid growth [rates forecast far into the future](https://www.financedigest.com/bank-of-england-officials-split-over-future-path-for-rates.html "Bank of England officials split over future path for rates"), as interest rates were slashed to safeguard economies from pandemic-related shutdowns. The Nasdaq soared 44% in 2020, its [biggest annual surge since](https://www.financedigest.com/uk-firms-plan-biggest-pay-rises-since-2012-to-fill-staff-gaps.html "UK firms plan biggest pay rises since 2012 to fill staff gaps") 2009. NORMALITY BACK? Exuberant market conditions and risk taking are being replaced by the more sober [activity of scanning for undervalued firms that pay](https://www.financedigest.com/with-the-right-active-manager-you-really-do-get-what-you-pay-for.html "With the Right Active Manager, You Really Do Get What You Pay For") decent dividends. A Reuters poll of 300 [global asset managers last month showed 70% of those surveyed](https://www.financedigest.com/new-york-catches-up-with-london-to-head-citys-global-centres-survey.html "New York catches up with London to head City’s global centres survey") believed these so-called value stocks would outperform this year. BlackRock Investment Institute, the research arm of the [world’s biggest](https://www.financedigest.com/biggest-economy-in-the-world.html "Biggest Economy in the World") asset manager, is also tipping value shares. MSCI’s value index, containing [stocks with low price-to-book value and high dividend yields](https://www.financedigest.com/stocks-yields-fall-data-suggests-u-s-economy-cooling.html "Stocks, yields fall; data suggests U.S. economy cooling"), has significantly underperformed its tech stock-dominated growth index since early 2020. This value index is dominated by energy companies viewed as benefiting from China’s economic reopening, banks that profit from higher rates and health [care and household products businesses](https://www.financedigest.com/the-importance-of-property-care-looking-after-your-business.html "The Importance of Property Care: Looking After Your Business") that could pass cost inflation on to the consumers of these basic goods. In Europe, recent data showed company [profit margins have been increasing](https://www.financedigest.com/4-tips-for-landlords-to-increase-rental-property-profits.html "4 Tips for Landlords to Increase Rental Property Profits") alongside input costs. Graphic: Premium paid for [growth stocks](https://www.financedigest.com/stocks-slide-on-growth-fears-oil-tumbles.html "Stocks slide on growth fears, oil tumbles") over value https://www.reuters.com/graphics/GLOBAL-STOCKS/lbvgglmnnvq/chart.png With the [reopening of China](https://www.financedigest.com/asian-shares-muted-as-investors-fret-over-china-reopening.html "Asian shares muted as investors fret over China reopening") and the stabilisation of the economy in Europe, that’s enough for these kinds of stocks to work,” Janus’ Schramm-Fuchs said. Another sign [investors are turning towards value shares is the reduced premium they are paying for growth stocks](https://www.financedigest.com/influx-of-one-time-investors-swapping-stocks-for-bricks-and-mortar-reports-agency.html "Influx of ‘one-time’ investors swapping stocks for bricks and mortar reports agency"). The gap between the price-earnings [multiple on MSCI’s growth](https://www.financedigest.com/wto-sees-subpar-2023-trade-growth-with-multiple-risks.html "WTO sees “subpar” 2023 trade growth with multiple risks") index, dominated by Apple and Microsoft, and its value counterpart was its highest in a decade in December 2020. It has returned to pre-pandemic levels but remains elevated compared to the [end of the Fed’s last rate-rise cycle in early](https://www.financedigest.com/analysis-investors-stick-to-bets-on-early-end-to-ecb-hikes-as-uncertainty-grows.html "Analysis-Investors stick to bets on early end to ECB hikes as uncertainty grows") 2019. This convergence (between [growth and value](https://www.financedigest.com/growth-vs-value-investing-comparing-investment-approaches.html "Growth vs. Value Investing: Comparing Investment Approaches")) should continue to be your base case,” said Ryan Reardon, ETF strategist at State Street Global Advisors. [“Central banks will keep rates](https://www.financedigest.com/central-banks-keep-hiking-rates-amid-banking-turmoil.html "Central banks keep hiking rates amid banking turmoil") high. (Reporting by Naomi Rovnick; Editing by Dhara Ranasinghe and Ed Osmond) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---